Court ruling affects Kia car project

JAKARTA (JP): The recent ruling by the Supreme Court that ordered PT Timor Putra Nasional car company to pay the tax directorate general Rp 3.2 trillion (US$326 million) in back taxes and duties has further put the fate of the Kia car project in limbo, Trade and Industry Minister Luhut Panjaitan said here on Wednesday.

The ruling automatically put the tax directorate general in seniority over the Indonesian Bank Restructuring Agency as regards to the claims on TPN assets, Luhut told a hearing with the House of Representatives.

"This development consequently forced the Indonesia-South Korean taskforce to discontinue its efforts to revive the TPN car project under a new joint venture company called PT Kia Timor Motors (KTM)," he added.

Before the Supreme Court ruling, the government had agreed on restructuring TPN's $521.5 million debts, resulting in IBRA owning 69 percent of KTM and the remaining stake held by Kia Motor of South Korea and TPN.

Nonetheless, the ruling overthrew the agreed ownership composition and forced the joint taskforce to postpone its work on the car project, he said.

The national car project was initiated in the mid-1990s by TPN which was then owned by former president Soeharto's youngest son Hutomo Mandala Putra or Tommy, in cooperation with South Korean automotive company Kia.

The national car project was exempted from import duties and luxury tax for three years, on condition that the cars' local content reached at least 20 percent in the first year of the program, 40 percent by the end of the second year and 60 percent by the end of the third year.

But TPN failed to fulfill the requirement and lost its powerful government support after the ousting of Soeharto in May, 1998. It was later ordered to pay Rp 3.2 trillion in back taxes and duties.

The economic crisis and the condition imposed by the International Monetary Fund on its bailout program for Indonesia later forced the government to suspend the project.

The government (IBRA) then took over TPN and its debts to private and state banks.

Kia withdrew from the joint venture in 1999, only to re-enter it last year as part of the government's bid to revive the car project.

Referring to negotiations with Kia company for reviving the car project, Luhut said that the Korean car company asked for tax facilities as one of the preconditions to its additional investments to complete the project.

He added that Kia had asked the government to exempt the national car project from import duties, luxury taxes, as well as offer it lower bank interest rates on new loans.

"We're still evaluating their (Kia's) demands, I can't tell whether we can accept them," Luhut told reporters following the hearing with the House Commission V for trade and industrial affairs.

He said the government was still assessing as to whether Kia's demands complied with the rulings of the World Trade Organization (WTO).

Indonesia came under fire from the WTO when the government first introduced tax facilities for Kia at the project's launch in 1996.

Luhut considered reviving the Timor car project quite an uphill task as the project's cost had grossly been marked up by TPN.

An audit by Ernst & Young accountancy firm disclosed that TPN had inflated the amount of investments it claimed to have put in the project, according to Luhut.

TPN claimed to have invested $112 million in its assembly plant in West Java but Ernst & Young due diligence estimated the investment at only $31 million.

"But the government would still try its best to revive the project in a bid to prevent total losses," Luhut added. (bkm)